Presented By: Ann Hempfling Conclusion and 08 Sierra Kollar-Lane Investment Utilization Bob Kasai Intro Ryan Wein Overall Performance Yi-Tai Lee Test of Financial Conditions Joe Ndukwe Profitability

History & Business CompanyPeet’s Coffee & TeaDiedrich Coffee, Inc. Starbucks Started1966 Berkley, CA1972 OC, CA1971 Seattle, WA Incorporated ;Reincorporate d Public Highest Distribution166 retail stores693 outlets national and international (338) Still growing. Growth goal of 20,000 US and 20,000 International Current Distribution retail stores, 135 independent distributors or mult- liners retail outlets nationally and 800+ wholesale distribution companies Purchases Seattle’s Best 60 stores in UK Acquires Seattle’s Best US Purchased 40 of 47 Dietrich & Coffee People stores US (11168) and International stores + wholesale and resale distribution companies

Overall Performance Measures Price/Earnings Ratio = Market price per share Net Income per Share Return on Assets = Net Income + (1-Tax Rate) Total Assets Return on Invested Capital = Net Income + (1-Tax Rate) Long-term Liab + Shareholders’ Equity Return on Shareholders’ Equity = Net Income Shareholder’s Equity

Overall Performance Measures Price/Earnings Ratio = Market price per share Net Income per Share Peet’s vs Starbuck’s Peet’s (Diluted) 4847 Starbuck’s (Diluted) 3148 Diedrich’s00

Overall Performance Measures Return on Assets = Net Income + (1-Tax Rate) Total Assets Peet’s vs Starbuck’s Peet’s 5.25%6.12% Starbuck’s 12.62%12.91% Diedrich’s0%0%

Overall Performance Measures Return on Invested Capital = Net Income + (1-Tax Rate) Long-term Liab + Shareholders’ Equity Peet’s vs Starbuck’s Peet’s 6.1%7.15% Starbuck’s 21.15%22.94% Diedrich’s0%0%

Overall Performance Measures Return on Shareholders’ Equity = Net Income Shareholder’s Equity Peet’s vs Starbuck’s Peet’s 5.69%6.13% Starbuck’s29.45%25.32% Diedrich’s0%0%

Overall Performance Measures Summary: Starbuck’s appears strong with a higher % of return on ROA, ROIC, ROE. Peet’s consistent b/w ROA, ROIC, ROE

Profitability Measures Gross Margin % = Gross Margin Net Sales Revenues Profit Margin = Net Income Net Sales Revenues Earnings per Share = Net Income No. Shares Outstanding

Profitability Measures Gross Margin % = Gross Margin Net Sales Revenues Peet’s vs Starbuck’s Peet’s 52%53% Starbuck’s57%59% Diedrich’s33%38%

Profitability Measures Profit Margin = Net Income Net Sales Revenues Peet’s vs Starbuck’s Peet’s 3.36%3.71% Starbuck’s7.15%7.25% Diedrich’s-4.82%-25.37%

Profitability Measures Earnings per Share = Net Income No. Shares Outstanding Peet’s vs Starbuck’s Peet’s$0.60$0.58 Starbuck’s$0.91$0.75 Diedrich’s$0.00$0.00

Profitability Measures Summary Similar level of Gross Margin Starbuck’s stronger Profit Margin over Peet’s : 7.1% vs 3.3% Starbuck’s stronger Earnings per share: $0.91 vs $0.60

Investment Utilization Current Ratio = Current Assets Current Liabilities Acid-Test Ratio = Monetary Current Assets Current Liabilities Inventory Turnover = Cost of Sales Inventory

Investment Utilization Current Ratio = Current Assets Current Liabilities Peet’s Starbuck’s0.79 Diedrich’ s

Investment Utilization Acid-Test Ratio = Monetary Current Assets Current Liabilities Peet’s Starbuck’s Diedrich’s

Investment Utilization Inventory Turnover = Cost of Sales Inventory Peet’s vs Starbuck’s Peet’s Starbuck’s Diedrich’s

Investment Utilization Summary Similar Inventory Turn ~5 times Peet’s- –Strong Current Ratio at 2.5:1.0 –Strong Acid Test at 1.27:1.0 Starbuck’s- –Too Levered: Poor Acid Test at 0.3:1.0 –Current ratio below 1:1 at 0.8:1.0

Financial Condition Financial Leverage Ratio = Assets Shareholders’ Equity Debt/Equity Ratio = Total Liabilities Shareholders’ Equity

Financial Condition Financial Leverage Ratio = Assets Shareholders’ Equity Peet’s vs Starbuck’s Peet’s Starbuck’s Diedrich’s

Financial Condition Debt/Equity Ratio = Total Liabilities Shareholders’ Equity Peet’s vs Starbuck’s Peet’s20.57%20.06% Starbuck’s133.96%98.74% Diedrich’s43.97%40.64%

Financial Condition Summary Peet’s- Debt/Equity Ratio is conservative at 20% Starbuck’s- Debt/Equity Ratio reflects its high leverage levels with a D/E of 133%.

Current 2008 Performance Consistent performance thus far with the exception of: –Starbuck’s Profit Margin has reduce from 7% to 3% which is now in line with Peet’s –Peet’s has slowed it’s Inventory Turn from ~5 to ~2.3 and slight reduction in Acid Test from 1.27:1.0 to 1.01:1.0.

Recommendation Due to Market Conditions Peet’s should continue to be conservative with their leverage and focus on Cash preservation and liquidity. Peet’s better opportunity, b/c conservative w/ their liab. & equity. Will prove beneficial long-term. Once debt markets become stronger, Peet’s could benefit from some added leverage. Peet’s would be a better investment based on their approach to their Balance Sheet and conservative approach to their leverage. Starbuck’s relies heavily on their Sales Volume and Debt levels that in this market is a risky investment.